Alaska regulators fine Hilcorp $267,500, saying oil producer has a ‘track record’ of violations

Alaska oil and gas regulators this week levied an unusually large fine against Hilcorp Alaska for violating an approved drilling process, and said the company continues to engage in a pattern of misbehavior that has led the agency to issue more than 60 enforcement actions against it.

The Alaska Oil and Gas Conservation Commission handed down the $267,500 civil penalty after the company in 2021 changed a procedure at the Milne Point oil field on Alaska’s North Slope, contrary to what had been authorized in a drilling permit, according to the three-page order. Hilcorp failed to notify the commission about the change, the order says.

The decision, on Wednesday, describes Hilcorp’s “track record of regulatory noncompliance” as a reason for the penalty’s size. It hearkens back to past commission decisions over several years that have pointed out the company’s repeated infractions. At times, the decisions have included a list of the enforcement actions against Hilcorp, though not this time.

Luke Miller, a spokesman with Hilcorp, said in a statement that the company values its relationship with the commission and takes the order seriously.

”Hilcorp submits hundreds of drill permits and sundries annually and performs thousands of operations with our top priority always being to operate in a safe and environmentally responsible way,” Miller said. “Upon learning of this specific incident, Hilcorp immediately began an investigation and took steps to improve our oversight and internal systems, including revising procedures, dedicating additional resources and strengthening training programs. An important part of Hilcorp’s culture is to get better every day, and we look forward to continuing to work closely with AOGCC to ensure compliant, safe and responsible operations.”

The commission’s decision said Hilcorp’s plan to prevent the problem from recurring is “insufficient.”

The fine is the second-largest issued by the commission in the last decade, exceeded only by a $440,000 penalty against oil company Eni in 2021 for failure to test the mechanical integrity associated with piping at several injection wells, according to the agency’s online archive.

Other fines against Hilcorp have included a $25,000 penalty when a worker died after being struck by a mishandled section of pipe on an oil rig at the Milne Point field in 2018, an incident that also led to a fine against a Hilcorp drilling contractor. Also, the federal Environmental Protection Agency in March 2022 fined Hilcorp $180,000 for methane leaks in Alaska and reporting violations.

Hilcorp has been credited for helping stabilize production at aging oil fields, including at Prudhoe Bay, where it took over as operator from BP in 2020 in a $5.6 billion deal. But critics have said the company is prone to accidents, like gas leaks in Cook Inlet in recent years. Hilcorp has rewarded employees with large bonuses for boosting oil production and the value of the company.

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The state oil and gas commission said in its decision this week that Hilcorp has frequently made changes to operations without the agency’s approval.

In this latest violation, the company improperly used a jet pump, rather than an electrical submersible pump, after it drilled a well at Milne Point in early 2021. The pumps are used in so-called “artificial lift” operations to increase oil production. The order notes that neither people nor the environment were harmed by the change.

Mark Myers, a former director of the Alaska Division of Oil and Gas, said it appears the state agency is “sending Hilcorp a very strong message” to stop violating its approved procedures.

“There are consequences even if you haven’t had an accident with a change to operations,” Myers said. “They need to notify the commission of an operational change of an approved well design. The commission is saying, ‘this has happened too many times and enough is enough.’ ”

Lois Epstein, a longtime watchdog on oil and gas issues and owner of LNE Engineering and Policy consulting firm, said Hilcorp’s pattern of not following permitted approvals could lead to a serious safety issue.

“This could occur on something that’s significant, where there’s a clear safety concern,” she said.

According to the decision, Hilcorp demonstrated a “lack of good faith in its attempts to comply with the approved” plan and made no attempt to address the discrepancy with the commission, additional factors that influenced the size of the penalty.

The agency’s decision says Hilcorp’s continued violations raise questions about its efforts to prevent future violations.

“Repeat violations such as failing to notify of changes to the Permit-to-Drill ... call into question the seriousness and effectiveness of Hilcorp’s efforts to improve its regulatory compliance,” the decision says.

A watchdog group questioned whether the penalty would change how the oil company operates.

“The AOGCC’s action today is an important first step,” said Robin O’Donoghue, a spokesperson with Alaska Public Interest Research Group. “Still, we can expect Hilcorp to continue this pattern of environmental crimes and negligence as long as the company is allowed to operate in the dark.”

The commission notified Hilcorp of the proposed fine on May 4. The company did not dispute the findings, or request an informal review or public hearing, the decision says. Hilcorp sent a check for the fine in mid-May.

Hilcorp also proposed corrective actions, as required, including reviewing conditions with that led to the incident with Hilcorp personnel, the agency says.

But the company’s plan to fix the problem is inadequate and probably won’t prevent it from occurring again, the decision says. In response, the agency asked Hilcorp to provide more details on how it will prevent future violations.

“Hilcorp’s steps for preventing recurrence lack detail and appear to be narrowly focused to operations and regulatory personnel in Hilcorp Alaska,” the decision says.

They “ignore the potential for similar events to occur at Hilcorp North Slope LLC operations, fail to identify management oversight shortcoming in assuring compliance with permit specifics (e.g., type of artificial lift completion), and fail to provide a corporate structure to avoid a similar repeat violation,” the decision says.

“These omissions make it unlikely to prevent recurrence of this type of violation,” it says.

The decision was signed by all three commissioners: Jessie Chmielowski, Gregory Wilson and Brett Huber.

The agency “takes its enforcement responsibilities seriously” and “cannot comment further outside of what is contained in the order,” Huber said in a emailed statement.